Google, PayPal Reportedly Nixed OCC Bank Charter Opportunity
It’s now been nearly a year since the Office of the Comptroller of the Currency opened up applications for their Special Purpose National Bank charters — more commonly referred to as FinTech bank charters. In that time state regulators have taken issue with the plan, with some filing lawsuits against the agency. Meanwhile few firms have taken the OCC up on their offer. According to a report by American Banker, there are a few reasons for that. Moreover those stumbling blocks apparently drove companies like Google and PayPal away from pursuing the process.
American Banker reports that both Google and PayPal previously explored the possibility of applying for an OCC bank charter. However they eventually backed off over fears regarding the legal challenges that have been brought against the agency. Additionally, since several FinTechs already have state licenses, many worry about harming relationships with regulators in those states only to have their charter scuttled should courts shoot down the OCC’s plan.
While state regulators might say the OCC charters go too far, another issue is that they might not go far enough for most FinTechs. Business Insider notes that the special purpose charters wouldn’t allow companies to accept deposits. For that, firms would require a traditional bank charter as well as approval of the Federal Deposit Insurance Corporation. Currently many FinTechs partner with smaller banks in order to offer customers FDIC insurance on their funds.
Explaining why companies have been wary of the Special Purpose National Bank charters, Financial Innovation executive director Brian Peters told American Bank, “At this moment, there’s just a lack of clarity as to what will the process be and will it be litigated. Whoever is first to apply, will it become the sacrificial lamb that the states go after? And that is a process concern where the marketplace needs a lot more certainty.” Similarly Sam Taussig, the head of global policy for the online small business lender Kabbage stated, “The OCC special-purpose charter is not a walk in the park. The Fed has done little in issuing policy statements clarifying whether an OCC special-purpose national bank would be given access to the payment systems. … While we have publicly supported the concept, there are still a number of variables that are unclear to the industry.”
Sadly, although the OCC’s announcement that it would allow for new charters seemed like good news for FinTech, the benefits have yet to be seen. This isn’t to say that they won’t still come about but it may be some time before the current issues are resolved. In the meantime it seems startups will simply find other ways to accomplish their disruption goals.